Roche has a centralised treasury function, including an innovative treasury operations team that, for the past decade, has led the profession in making its vision of centralisation, optimisation and value creation a reality.

Roche’s approach to innovation, digitisation and automation has been at the heart of Roche’s centralisation and transformation. As a result, with only a small team (Figure 1), treasury manages CHF 10bn in corporate liquidity, gross debt of CHF20bn (US$ 21.58bn) and CHF 6bn (US$6.47bn) in daily FX exposures across 40 currencies.

This philosophy has led the team to explore the opportunities created by distributed ledger technologies (DLT) or blockchain as they consider both the efficiencies that they can gain across their own ecosystem, and the future of money more widely. At a recent Deutsche Bank webinar Britta Döttger, Group Treasurer, Roche said, “Our blockchain journey started with the Libra (later Diem) white paper in 2019 which was based on the idea of a world cryptocurrency that is more accessible to the unbanked, more efficient with fewer fees, more stable in value than Bitcoin etc. and more long lasting through decentralisation. This really resonated with us.”

Roche therefore explored the research that was taking place through the Diem consortium in Switzerland, and looked more closely at the technology itself. Döttger continues, “DLT and blockchain offer more than standardisation, automation and efficiency that have been the main focus of new technologies for us in the past. Alongside the internet of things (IoT), web 3.0 and artificial intelligence, we could be part of a journey where we would, together with the business, implement new business processes, and maybe even new business models.”

As the name suggests, blockchains contain all transaction information in blocks that are chained together. Blockchains can be either public or private, with transaction data publicly available and transparent to all participants, together with block explorers and blockchain analytics. Each action on a transaction is time stamped and updated in real-time, so every participant has a single, up-to-date view. Smart contracts are emerging as a valuable way of leveraging blockchain technology in financial services to replace labour- and time-intensive processes. A smart contract is a digital agreement between two or more parties. It takes the form of code that runs on a distributed computer network that orchestrates processes that the participants have agreed on. The smart contract executes automatically based on fulfilment of the contract terms without the need of a validating third party.

“We teamed up with procurement colleagues who had … a complete case across procure-to-pay”
Stefan Windisch, Senior Cash Manager, Roche

The purpose of the first blockchain-based pilot project on which Roche’s treasury has embarked is to showcase what the technology is capable of, and the benefits it can deliver. In particular, the team was attracted to the technology’s ability to support a single source of truth, automate payments processing and position the business for future digital currencies. To do this, treasury partnered with the procurement business, to enhance process automation as well as the procure-to-pay processes and streamline working capital financing. Stefan Windisch, Senior Cash Manager, Roche explains, “We came to the conclusion that blockchain technology would allow us to share and create transparency over information across multiple perspectives. We teamed up with procurement colleagues who had concrete needs and a complete case across procure-to-pay.”

In most projects, companies focus on improving their own internal efficiencies and automation, without looking at how the value of these improvements can be replicated across the value chain. From a procure-to-pay perspective, this includes the buyer, the seller, but also the banks that transfer payments between them. Roche already had a purchase order (PO) and supply chain financing programme in place but recognised that inefficiencies across the value chain can result in delays between raising the purchase order and receiving the invoice, with multiple manual interventions (see Figure 2). This has a negative impact on operational efficiency, suppliers’ liquidity, and on Roche’s forecasting ability.

Roche’s platform offers greater efficiency, transparency and security with a single source of truth – not only within Roche, but across the value chain, with less manual administration. Stefan Windisch, Roche explains, “We can process invoices faster and reduce mutability of master data, which is essential in reducing fraud risk. We believe the solution is scalable too. From a vendor's perspective, there are fewer manual steps, and access to funding is faster, with the same visibility over the contract status as we have at Roche.”

There are also advantages for Roche’s banks. Windisch continues, “We can show that we are in a better position to handle digital currencies or tokenised fiat money, which may encourage investment in these areas amongst our bank. From a functional perspective, we can move from PO to supply chain financing more quickly, as the bank is no longer waiting for us to instruct an invoice or confirm a payment, which could otherwise take days or even weeks.”

The benefits extend beyond the procurement function.

• First, while treasury could focus its resources on automating the final one or two percent of its in-house banking activities, there is more value to the group if it allocates its resources and expertise to areas in which automation could have a greater impact on the business, hence the importance of partnering with complementary business functions such as procurement.
• Second, the project has been a valuable proof of concept on how smart contracts on the blockchain can increase efficiency and transparency. This aligns with treasury’s wider standardisation and automation objectives and offers lessons for other treasury activities. Roche’s Döttger, reflects, “There are lots of potential applications around the financial markets infrastructure. For example, we could issue and settle digital bonds on the blockchain, which would be quicker and more efficient, with shared information on the bond issue terms. As a smart contract, it could even go so far as orchestrating the coupon payments and the repayment of a bond.” Likewise, there is potential for streamlining and accelerating cross-border clearing, and payment diagnostics and effectively eliminating the need for confirmation matching.

There are still many questions to resolve, such as how the cash element fits with smart contracts and blockchain, and the future role of central bank digital currencies or tokenised deposits. There are also complex legal and regulatory issues to explore and resolve, particularly cross-border, with some countries more advanced than others. The sustainability of blockchain-based solutions remains a challenge, particularly for large, decentralised networks that consume large amounts of energy, as opposed to private blockchains where participation and processing overheads are far lower. Even so, companies, together with their commercial, technology and financial partners, will need to weigh up their operational, security, sustainability and cost priorities to determine how blockchain solutions may complement existing and other emerging technologies.

Helen Sanders is a consultant to the financial services sector, and former Editor of Treasury Management International